Revenue in the European industrial water treatment chemicals market totaled around $1.31 billion in 2005 and is projected to reach around $1.94 billion in 2012, according to a report from Frost & Sullivan.

High profit margins in providing services are obliging market participants into shifting their focus from municipal to industrial sector while supplying water treatment chemicals. This move significantly boosts the demand for these chemicals. Rising environmental concerns have forced regulatory bodies such as the European Commission (EC) to issue directives that govern the use and discharge of water in industrial processes.

"Legislation, consolidation and opportunities in eastern Europe have started to influence the dynamics of the water treatment chemicals market in Europe as the competition is shifting towards value-based products and technology, enhanced services as well as providing total solutions," said Frost & Sullivan Research Analyst Mahesh Kumar. "Competition to seize business opportunities is increasingly fierce between service providers and chemical manufacturers."

Although the stringent legislation that Europe is likely to witness is expected to provide opportunities in the water treatment chemicals market, it is also anticipated to increase operational costs. This is likely to affect the water treatment chemicals market, as many companies are already involved in forward as well as backward integration to reduce costs and remain competitive in the market while complying with standards.

Despite advantages such as cost efficiency, the challenge for companies in this industry arises from chemicals being categorized as commodity products. As a result, water treatment chemical producers are focusing on providing value-added services to industries to improve revenues.

"With the consolidation of the industries within Europe, more specialty chemicals are bound to become commodity products," Kumar said. "Commoditization of the water treatment chemicals tends to reduce their price margins and thereby decrease revenues."

Water treatment chemical manufacturers that enhance their services and complement their products with better services are likely to establish long-standing relationships with customers and thereby increase their revenues.